Societe Generale anticipates that the European Central Bank (ECB) will maintain a hawkish pause in its upcoming September policy meeting. The bank expects a rate hike to be delayed until December, but still envisions the ECB maintaining its hawkish stance due to inflation targets.
Key Points:
Hawkish Pause Anticipated: The ECB is expected to hold its interest rates steady this week, despite the hawkish tones that have been prevalent in recent communications.
Downside Risks: According to the bank, the ECB is likely to note rising downside risks to the Eurozone economy since the July meeting. These risks may have implications for medium-term inflation outlooks.
Inflation Target: Societe Generale expects that the ECB will not abandon its hawkish bias unless there is solid evidence that its 2% inflation target cannot be met within a designated time frame. This suggests the potential for one more rate hike this year, likely in December.
More QT (Quantitative Tightening) Expected: After the anticipated December rate hike, the ECB is likely to proceed with additional Quantitative Tightening (QT) in the early part of the following year.
New Staff Forecasts: The new staff forecasts from the ECB are likely to indicate lower growth for the next year, contrasting with the June forecast of 1.5%.
Conclusion:
Societe Generale projects a hawkish pause from the ECB in its September policy meeting, citing downside risks to the Eurozone economy and a cautious stance on inflation targets. While they anticipate a rate hike later in the year, around December, they also expect more Quantitative Tightening to be implemented early next year. The bank believes that the ECB will maintain its hawkish bias until there is unequivocal evidence that the 2% inflation target is unachievable.
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